The New York Department of Financial Services, or NYDFS, has released guidelines on how licensed crypto firms should handle customer assets should they face “insolvency or similar proceeding”.

In a Jan. 23 announcement, NYDFS superintendent Adrienne Harris said crypto firms and exchanges operating under a BitLicense — required in New York state — should segregate corporate funds from users’ virtual currency holdings both on-chain and in the “internal ledger accounts” of the company’s custodian. According to the regulator, crypto firms are expected to hold users’ assets “only for the limited purpose of carrying out custody and safekeeping services”:

“A [virtual currency entity’s] customer agreement should make clear the parties’ intentions to enter into a custodial relationship, rather than a debtor-creditor relationship.”

In addition to these guidelines, NYDFS added that all licensed firms custodying assets should “maintain appropriate books and records” as well as disclose information related to its products and services in terms and conditions available to customers. Harris said the guidance was aimed at the “safekeeping of customer assets”.

#ICYMI: Superintendent Adrienne A. Harris released Regulatory Guidance to better protect customers in the event of an insolvency or similar proceeding. Read more here: https://t.co/Nstz39M9Wo pic.twitter.com/FJ0fbrJBxH

— NYDFS (@NYDFS) January 23, 2023

The announcement followed several crypto exchanges based in the United States filing for Chapter 11 bankruptcy protection after some reported liquidity issues, including FTX, BlockFi, Voyager Digital, and Genesis. Many former customers of the crypto firms have not been made whole amid bankruptcy proceedings.

Related: New York proposes to charge crypto companies for regulating them

Harris said during a November 2022 speech that lawmakers at the federal level should consider a “framework nationally that looks like what New York has” in terms of crypto regulation, referring to the state’s BitLicense regime. The NYDFS has also previously released regulatory guidance for U.S. dollar-backed stablecoins.